Good News, Bad News: An HBR Management Puzzle on Innovation Execution
October 3, 2013 Editor 0
It shouldn’t happen, but it does: You realize much too late that your innovation project is in deep trouble.
How did someone with your knowledge and training miss the signs of impending disaster? Were you misled by the data? By your own assumptions?
In a recent analysis of a massive, expensive innovation failure, Kim van Oorschot of BI Norwegian Business School, Henk Akkermans of the University of Tilburg in the Netherlands, and Kishore Sengupta and Luk N. van Wassenhove, both of Insead in France, found that the complexity of high-tech innovation efforts can blur teams’ perceptions.
The following highly condensed fictional case study draws on their paper “Anatomy of a Decision Trap in Complex New Product Development Projects” in Academy of Management Journal. While the details of the project they studied have been changed in this story, the essential findings of their research remain. Commentaries by project manager Roger Thomas and researcher Kim van Oorschot provide frameworks for understanding the team’s decisions.
See if you can determine where the team went wrong:
Ana is the experienced, 39-year-old project manager of a global semiconductor company’s strategically important effort to create an innovative driver-interface system for the 2017 model of a European automaker’s most popular passenger car. The customer needs the project completed by mid-2015.
Ana’s company has given her a 161-week schedule that includes 18 weeks of slack time to accommodate unforeseen delays. The plan is for the team to include about 100 full-time equivalents, or FTEs, once it’s up to full strength.
Week 9: As the team works to define the project, Ana notices that job applicants are few, and many lack the needed experience. Ana writes in her journal: “The good news is we’re only 15% below our optimal staffing level of 70 FTEs. The bad news is that the job market is really tight, and it’s preventing us from hiring the conceptual designers we need.” An independent steering committee’s first “gate” review of the project, at the end of the conceptual-design stage, had been scheduled for Week 15; she postpones it to Week 33.
Week 24: Ana writes: “The good news is that because we’ve extended the conceptual-design period, we’ve limited our need to increase staff. Assimilating some of the new people has taken longer than expected, and coordinating the designers’ efforts has been a challenge, but at least the team has 100% of the 90 FTEs it needs at this point to complete the conceptual design.
The only bad news is that the steering committee turned down my request of €2 million in additional funds for the 2013 budget. This would have been primarily a reallocation of some of the 2012 funds we didn’t use because of reduced staffing levels. Compared to our original plan, a larger part of the development phase will now be executed in 2013. Because of the delays, we’ll need to do more development work in 2013, though the budget remains unchanged. So I’ve been cutting costs like crazy, mostly by reducing the time scheduled for future tasks.” She reschedules the first gate for Week 42.
Week 35: “The good news is that because of our difficulties meeting our budget, we’ve managed to restructure the project to reduce the number of sites involved, reuse designs from earlier projects, and drop a number of minor customer requirements from the plan. As a result, the burn rate is a lot lower. Progress is only a little behind plan. The bad news: As we move into the detailed design phase, we’ll have to increase staff. That won’t be easy, given the job market.”
Week 42: “The great news is that the project passed the first gate with the steering committee’s full approval! The bad news is that we’re 27 weeks behind the best-case scenario. But as my father always said, there’s no problem that can’t be solved by hard work!”
Week 62: “The good news is that the company just decided to postpone the project for one year, which will give us all the time we need to catch up, and we have plenty of designers now on staff. To compensate the customer for the delay, the company has offered to increase the scope of the project and accommodate a lot of the exciting requirements that were dropped in Week 35!
“There are a couple of bits of bad news: There’s no increase in our budget, we have to reconceive the project and go through first-gate approval again, and the designers we now have on staff are detail designers. We can’t lay them off and hire conceptual designers, because the delay in our project is creating cash-flow problems for the company, and there’s a hiring freeze. We’ll have to reassign the existing designers to conceptual work, which isn’t their area of expertise. It’s nose-to-the-grindstone time!” She schedules the new first-gate review for Week 79.
Week 79: The team misses this deadline.
Week 85: Despite a cumulative investment of more than €20 million, the company cancels the project.
What went wrong?
The Experts Weigh In:
One of the most important things a project manager can do is instill a sense of urgency in all those involved with the initiative from the very beginning. Ana didn’t do that. She allowed the team to indulge its natural tendency to feel relaxed about its upcoming deadlines, which seemed very far away, and she ignored critical issues that were piling up around her.
Complacency can have a severely negative impact on decision making and execution during a project’s critical early stages. I’ve seen that over and over in my 20-plus years as a project manager in various industries.
Without realizing it, Ana made decisions that allowed her team to slip further and further behind. Missing the first deadline at 18 weeks should have put the team into recovery mode and triggered emergency measures to rectify the schedule slip. Yet she was easily able to convince herself that things were fine. Once a team has fallen significantly behind, it’s often too late to remedy the problem without seriously affecting the schedule and budget.
A good way to instill a sense of urgency from the get-go is to break down large, unmanageable “blob” tasks into smaller subtasks of up to one to two weeks’ duration. The subtasks are closely monitored for timely completion and their progress is reported regularly to the entire team. If you miss one or two of the subtasks’ target dates, you quickly put the project on a remedial track, bringing in additional resources to make the time back.
For example, in the project’s first few weeks, when staffing shortages were becoming a problem, Ana should have taken emergency steps such as outsourcing tasks.
One of the most striking elements of Ana’s story is that she wasn’t alarmed at having depleted her pool of slack time at an early stage. On a big, complex project, every single schedule day is a precious commodity. A successful project manager will execute the plan with that in mind from Day One.
Like so many new-product-development teams, Ana’s group received a nearly continuous stream of mixed signals during much of the project’s life. Research shows that mixed signals pose a serious interpretation problem in complex, dynamic situations: If bad news is quickly followed by good news, managers tend not to perceive it as strongly indicative that something is wrong. Instead, they interpret instances of bad news as anomalies – as acceptable deviations. That puts them in a dangerous position, because they don’t see the urgency of solving small problems as they arise.
Another way of putting it is that managers tend to focus too much on fighting symptoms instead of solving root causes. The root cause of the problems Ana faced was consistent understaffing. Instead of focusing on the negative events that resulted from understaffing, Ana and her team celebrated positive events that were caused by solving symptoms, like the reduced schedule pressure and the reduced need to increase staffing levels because of postponing the gate, and the successful restructuring of the project to reduce the budget. Ana and her team allowed these positive events to cancel out the negative events, which gave her team an illusion of control. But in the meantime, the understaffing issue was unresolved and kept causing new problems.
Unraveling positive and negative events can be difficult. Our brains just aren’t wired that way. When these events occur at the same time, we tend to average them out and conclude that the situation is not so bad and still under control. To make up for this shortcoming, teams should assign one person in each big project to keep track of just the negative events, such as understaffing, performance gaps, and schedule slippage. This person should record the information on a scorecard, which should be monitored by all of the team leaders.
Good record-keeping would have allowed Ana to monitor her project’s progress, or lack thereof, more accurately. It would have helped her see, for example, that she needed to deal decisively with understaffing during the project’s early weeks. It was too easy to blame the problem on the “job market.” She should have fought for a budget increase so that she could have ramped up her search and speeded the hiring process. If the company had refused, record-keeping would have helped her see that the only remaining option, short of halting the project, would have been to significantly reduce the project’s scope.
There are suggestions in her diary that Ana also seems to have made the mistaken assumption that no matter how far her team fell behind, it could always catch up. Because she wasn’t keeping track of the negative and positive events separately, but blended these into a high-level evaluation of the entire project, she didn’t see that the positive events were caused by fighting symptoms and that the “solutions” worked only in the short term.
Again and again, I’ve seen managers like Ana minimize the importance of negative indicators while failing to notice their steady accumulation. That’s how small problems become big enough to kill an entire project.
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